Introduction
Many S corporation owners and preparers search for "Line 19 other deductions" and land on the wrong line. On the current Form 1120-S, other deductions sit on Line 20.
Line 19 is the energy efficient commercial buildings deduction, which requires Form 7205. Total deductions are Line 21, and ordinary business income or loss is Line 22.
That mix-up matters. "Other deductions" is a residual category for allowable business costs with no dedicated line. It is not a dumping ground for every account in the general ledger.
This guide covers what belongs on the other deductions line, what doesn't, how to build the supporting statement, and how the result flows to Schedule K-1. It is written for Australian business owners, preparers, and advisors who handle US S corporation filings. Line numbers below reflect the 2025 form, so check the current year's IRS form and instructions before filing.
Key Takeaways
- Other deductions appear on Line 20 of the 2025 Form 1120-S; Line 19 is the Form 7205 energy deduction.
- An expense must still be ordinary, necessary, substantiated, and not capital or personal.
- The total reduces ordinary business income, which flows to each shareholder's K-1.
- Interest, depreciation, Section 179, charitable gifts, and nondeductible costs go elsewhere.
What Is the Other Deductions Line on Form 1120-S?
What it captures
According to the IRS Form 1120-S instructions, this line holds allowable trade or business deductions not deductible elsewhere on page 1. You attach a statement listing each deduction by type and amount.
The 2025 page 1 layout works like this:
| Line | Item |
|---|---|
| 7-18 | Dedicated categories (officer pay, wages, repairs, bad debts, rents, taxes, interest, depreciation, and so on) |
| 19 | Energy efficient commercial buildings deduction (Form 7205) |
| 20 | Other deductions (attach statement) |
| 21 | Total deductions (Lines 7-20) |
| 22 | Ordinary business income (loss): Line 6 minus Line 21 |
"Other" describes a reporting category. It doesn't create a special type of deduction or blanket permission to deduct a cost.
Why a book expense may not be a tax deduction
Accounting records and tax rules differ. Under IRC 162, a business cost must be ordinary (common and accepted) and necessary (helpful and appropriate). Several items fail even when they sit in the books:
- Personal, living, and family expenses (IRC 262)
- Capital expenditures such as buildings and permanent improvements (IRC 263)
- Entertainment, which is generally nondeductible
- Government fines and penalties covered by IRC 162(f)
Schedule M-1 exists to reconcile these book-tax differences.
How the line affects the return
The total feeds Line 21, then Line 22. Ordinary income or loss moves to Schedule K Line 1 and then to Box 1 of each shareholder's K-1. Separately stated and nondeductible items follow different paths.
Which Expenses May Be Reported on Line 20?
Common operating costs
The 2025 instructions name these examples:
- Insurance premiums
- Legal and professional fees
- Supplies used and consumed in the business
- Utilities
- Travel and meals, subject to limits
- Amortisation, including certain start-up and organisational costs
- Negative section 481(a) adjustments, with a computation attached
"Office expenses" isn't a named example, so match each cost to the most specific line first. Use Line 20 only when the form and instructions support it.
Amortisation, start-up, and organisational costs
Start-up costs (IRC 195) and corporate organisational costs (IRC 248) follow the same pattern:
- Deduct the lesser of qualifying costs or $5,000, reduced by costs above $50,000.
- Amortise the remainder over 180 months from the month business begins.
- The election is deemed made; you can instead elect capitalisation on a timely filed return.
Form 4562 Part VI calculates amortisation, and the allowable amount is reported on Line 20. The Form 4562 instructions say no statement is needed to make the election, but the Line 20 statement is still required. If only pre-2025 amortisation exists and no other filing reason applies, you can skip Form 4562.
Expenses with limits
- Business meals: generally 50% of otherwise allowable cost.
- Entertainment: generally nondeductible. Separately stated food and drink may fall under meal rules.
- Travel: deductible if ordinary, necessary, and substantiated under IRC 274(d).
Include only the deductible portion. Nondeductible amounts may go to Schedule K Line 16c.
Items that look similar but go elsewhere
| Item | Where it goes |
|---|---|
| Bad debts | Line 10 |
| Interest | Line 13 (Form 8990 if section 163(j) applies) |
| Depreciation | Line 14 / Form 4562 |
| Section 179 | Schedule K Line 11 |
| Charitable gifts | Schedule K 12a (cash), 12b (noncash) |
| Section 179D | Line 19 / Form 7205 |
The December 2025 Form 7205 instructions state that section 179D is terminated for property whose construction begins after 30 June 2026.
A short example
For example, legal fees, business software, utilities, and merchant fees each appear on the attached statement with their own amounts, and those amounts total Line 20.
Depreciation stays on Line 14, officer pay on Line 7, and interest on Line 13. This example covers classification only, not whether any specific expense is deductible.
How to Calculate and Report Line 20
Start with the books
Begin with the year-end profit and loss, general ledger, trial balance, and transaction detail. Don't copy a single "miscellaneous expense" account across. Sort each cost into Lines 7-18, cost of goods sold (Form 1125-A, Line 2), a supporting form, Schedule K, or Line 20.
Strip out what doesn't belong
Review for:
- Shareholder and personal expenses
- Loan principal and distributions
- Covered fines and penalties
- Capital improvements, which need capitalisation and depreciation or amortisation
Build the statement
- List each deduction type with its amount.
- Make the total agree with Line 20.
- Show the corporation's name and EIN on each attachment.
- For electronic filing, follow the instructions for statement formatting.
The statement gives detail, but it doesn't replace invoices, receipts, or contracts.
Reconcile
Confirm each cost appears once, with nothing duplicated on another line or form. Then tie Line 22 to the workpapers, Schedule K, and each K-1.
Connect to shareholders
A deductible Line 20 expense reduces Box 1 income. Nondeductible expenses go to Schedule K Line 16c and K-1 Box 16 code C, generally reducing stock basis.
Default basis order is:
- Income
- Distributions
- Noncapital nondeductible expenses
- Losses
Use Form 7203 when claiming a loss, receiving a non-dividend distribution, disposing of stock, or receiving a loan repayment.
What Should Not Be Reported on Line 20?
What Should Not Be Reported on Line 19?
Items with their own line or form
Lines 7-18 cover officer compensation, wages, repairs, bad debts, rents, taxes and licences, interest, depreciation, depletion, advertising, pension plans, and employee benefits. Amounts on Form 1125-A, Form 4562, Form 7205, or Schedule K shouldn't be repeated here.
Charitable contributions, Section 179, credits, and expenses tied to tax-exempt income also flow through Schedule K rather than the ordinary income total.
Nondeductible or unsupported items
- Personal expenses (IRC 262)
- Shareholder distributions (K-1 16D) and loan repayments (16E)
- Loan principal
- Covered fines and penalties
- Costs lacking records or a business purpose
A ledger entry alone doesn't establish deductibility.
Australian shareholders
Direct nonresident alien shareholders are generally barred from S corporation status under IRC 1361(b)(1)(C), apart from limited ESBT exceptions. Australian tax residents must declare foreign income to the ATO, and Article 22 of the US-Australia tax treaty addresses double-tax relief. Get separate advice on how K-1 items and distributions interact with Australian reporting.
Records, Review, and When to Get Help
Documentation checklist
Gather:
- General ledger and income statement
- Invoices, receipts, and contracts
- Bank and credit card statements
- Payroll and loan records
- Depreciation and amortisation schedules
- Notes on related-party or unusual transactions
For each material category, keep the amount, payment date, business purpose, recipient, and tax classification. The IRS says S corporations usually keep records three years from the later of each shareholder return's due or filing date, with longer periods in some cases.
Final review
Before filing, confirm:
- You used the current-year form and instructions
- The Line 19 statement agrees with the return
- Totals reconcile to the books
- All K-1s are complete
Add extra review for:
- Ownership changes
- Related-party costs
- Large losses
- Interest limits
- International shareholders
- Amended returns
An amended return needs box H(4) checked and a statement explaining each change.
Getting support
VJM Global is a chartered accountancy firm that supports Australian and international businesses with US tax compliance, including reconciling accounting records, preparing Form 1120-S, and coordinating K-1 information. This is not a substitute for tailored US or Australian tax advice.
Disclaimer: Treatment depends on the facts, tax year, and current IRS guidance. Complex or cross-border matters should be reviewed by a qualified tax professional.
Frequently Asked Questions
What are the other deductions allowed on Form 1120-S?
Line 20 covers allowable business deductions with no dedicated line, such as insurance, legal fees, utilities, and supplies. They must still be ordinary, necessary, and substantiated.
Is interest expense deductible for an S corporation?
Qualifying business interest is generally deductible and reported on Line 13, not Line 20. Section 163(j) may limit it, and disallowed amounts carry forward at the corporation level.
What do nondeductible expenses on Schedule K-1 do to shareholder basis?
Box 16 code C amounts give no current deduction but generally reduce stock basis. Verify ordering rules and Form 7203 requirements.
What is line 13K on Schedule K-1?
On the 2025 form, code 13K is the disabled access credit, not excess business interest expense. Section 163(j) carryforwards stay with the S corporation.
What is line 16D on Schedule K-1?
Code 16D reports shareholder distributions. These aren't deductible expenses and should be analysed against stock basis.
What line is amortisation on Form 1120-S?
Calculate it on Form 4562 Part VI, then report the allowable amount on Line 20. Check the current instructions for the prior-year-only exception.
